Wednesday, June 25, 2008

More Aid Waste

Into the darkness goes our cash

We've done a few posts recently on overseas aid (eg here and here). Our conclusion so far is that very large chunks of the £5bn pa we taxpayers now spend on aid is totally wasted, going mainly to support the international aid industry.

Today the Public Accounts Committee published its report on one rapidly growing component of the UK aid programme - so-called "budget support". That's where instead of spending money directly on specific aid projects, like building a new hospital, the Department for International Development (DFID) simply hands over a wad of folding money - currently £0.5bn pa - to the governments of favoured developing countries, so they can spend it themselves, as they decide.

What! you say. What! That's bonkers isn't it? Surely everyone knows those people are as corrupt as hell. Won't the money just go walkabout, or at best, get flushed straight down the toilet?

The answer is that the wide-eyed fools at DFID have no idea. But the PAC reports:

"DFID has not estimated how much funding through developing governments is wasted or used for corrupt purposes, but the estimates of others are worrying. For example, in Tanzania and Uganda other bodies have estimated that 20% of procurement expenditure is lost through corruption. In 2006–07, DFID provided £90 million and £40 million respectively in budget support funding in these countries. More recently, an external audit of the Bank of Tanzania showed that US$100 million had been misused, and in February 2008, Tanzania’s prime minister and entire cabinet resigned after being implicated in corruption over an electricity contract."

It's a complete and utter shambles. DFID is doling out hundreds of millions of our money on this scheme every year, and yet:

It has not established the effectiveness of budget support relative to other types of aid, or been able to conclude whether, as currently implemented, it represents value for money.

Its budget support objectives and monitoring have significant weaknesses.

It rarely attempts to quantify the impact of weaknesses in systems for risks to DFID’s funds.

It provides budget support expenditure in countries where expenditure and output data are so weak that it cannot monitor progress effectively.

It claims that budget support allows it to shape national policy but at other times claims that using leverage rarely works.

The financial risks of putting UK funds through weak national systems are often high.

Of course, DFID makes all kinds of wild arm-waving claims, but like so much of the aid industry, it's wholly unable to substantiate them. Most are pure untestable assertion, although the PAC has at least had a go.

For example, DFID asserts its budget support has increased the supply of public services, like primary school enrolments, to the poor in recipient countries. But as the PAC points out:

"...such improvements cannot be attributed solely to budget support, but also reflect the efforts of the governments of the developing countries, other donor projects and prevailing economic conditions and growth rates. Many countries receiving budget support have increased their primary enrolment rates significantly, but so have some countries which have had no budget support. In addition, the modest increase in Ghana’s enrolment rates and the decrease in the rate in Vietnam [both recipients] show that the pattern of benefits from budget support is by no means simple."

"By no means simple", which translates as "there's no relationship whatsoever". No wonder other countries spend so much less on budget support - as a proportion of our bilateral aid programme, we do more than three timesanyother donor.

And what about that tricky growth issue? As we've noted before, there seems to be virtually no credible evidence that development aid has boosted sustainable economic growth in recipient countries at all. Those countries like India and China that have lifted off, have done so largely through dint of their own efforts, especially in the field of economic reform.

When they say "no simple correlation", they mean there's absolutely no correlation of any discernable kind (apart from that they're perfectly all right).

The PAC puts it this way:

"DFID believes that budget support can assist the developing country economy to maximise the potential for growth, for example, by promoting good macroeconomic management and encouraging increased productivity. In Malawi, however, an independent evaluation found that the government had a poor grip of the macro-economic situation and that budget support actually worsened both macroeconomic performance and the steady flow of aid funds. Although budget support has been provided by DFID for ten years in some countries, direct links between the support, economic growth and poverty reduction are hard to detect. Many studies on links between growth and aid in general have been inconclusive or contested."

They could have been speaking for the entire development aid programme. DFID may believe, but there is no hard evidence all those billions have boosted sustainable growth one iota.

PS Further to our posts on the nonsense of UK aid to India, BOM correspondent Joan W draws our attention to an announcement from investment quango CDC that it's going to punt £126m of our money into Indian infrastructure and real estate. CDC says“The kind of interest we’re seeing in this market shows that people recognise this is an asset class that is under-capitalised and underdeveloped.” We say we don't care how under-capitalised it is, we don't want the government spivving our hard-earned taxes around a bunch of dodgy Indian property funds. If people want to do that, let them use their own money.

BOM the book now available

Drawing on six years of blogging government waste, this book shows how we spend far more than we need on our public services. It sets out the facts and explores the underlying issues. Just why does government spend so much and deliver such second rate service? Why do we put up with it? And what are the alternatives?

ABOUT BOM

Despite all the talk of cuts, government still consumes nearly half our national income. Yet many tens of billions of its spending is wasted, with taxpayers made to pick up the tab for a depressing array of overpriced sub-standard services. This is money we can no longer afford, and our National Debt is already at danger level.

If we're to avoid further decades of stagnation and austerity we urgently need to find another way. Exposing and understanding the wastefulness of government is a necessary step in the right direction.